Produce the Note

The latest tactic in the never-ending battle against foreclosure is “Produce the Note.” Borrowers are hoping to delay foreclosure or perhaps get a free house. What do you think about that?

Today’s featured property is being offered 20% off its 2004 purchase price. That is quite a discount from peak valuations in 2006.

Asking Price: $470,000

Address: 20 Queens Wreath Way, Irvine, CA 92612


Produce the Note — Good Morning America

Everyone is out to screw the lenders these days. I suppose they deserve it for their gross negligence in allowing a massive housing bubble to inflate, but there are some things happening to lenders that do not seem quite right. People are trying to avoid foreclosure by demanding that the foreclosing party produce the note. Since the mortgage paperwork has been transferred so many times to so many parties, it can be difficult for loan servicers to find the paperwork when challenged.

People are using this technique to buy time, and some even believe they can get out of paying back the mortgage and keep the house (when will the fantasies ever end?) Because this technique has the fantasy appeal of hitting the lottery, everyone facing foreclosure is trying it. Why not? If they can’t find the note, you get more free rent in your foreclosed house, and who knows maybe you will be able to keep it.

How do you feel about this practice? Are the lenders getting their comeuppance? Are homedebtors finding one more way to game the system?

IMO, this is just a technicality. Borrowers still borrowed money, and lenders are still owed money. Nothing has changed. I actually find it rather amusing that the lenders are getting burned this way, but only if it drags on for a few months. It is the homedebtors who believe this will get them a free house that rather annoys me. Money for nothing is what these homedebtors thought they had when prices were going up. If they actually get to keep the home, they really have gotten free money from the lender. I guess when money is free, there is a lot of demand.

Yeah, we’re laughing all the way to the bank
‘Cause it all just seems so funny
A bunch of guys like us
In a big tour bus
Making that easy money

One thing you can be sure will come out of this phenomena: better
filing and paperwork standards.

So what do you think? If you look at
the comments on the youtube video, they had a lively discussion about it.

Asking Price: $470,000IrvineRenter

Income Requirement: $117,500

Downpayment Needed: $94,000

Monthly Equity Burn: $3,916

Purchase Price: $575,000

Purchase Date: 5/18/2004

Address: 20 Queens Wreath Way, Irvine, CA 92612

Beds: 4
Baths: 3
Sq. Ft.: 1,896
$/Sq. Ft.: $248
Lot Size: 3,168

Sq. Ft.

Property Type: Single Family Residence
Style: Other
Year Built: 1965
Stories: 2
Area: University Park
County: Orange
MLS#: S565605
Source: SoCalMLS
Status: Active
On Redfin: 1 day

New Listing (24 hours)

BEAT THE Bank! Your last chance to buy this Home in very Desirable
University Park 4 Bedrooms 2.5 Baths 2 Car Garage , Double entry doors,
Limestone flooring Marble Tile, Balconies off the Bedrooms with
incredible Sunset Views, Two Fireplaces; one in Master and one in
Living Room, Assc Tennis Court, Pool and Spa, No Mello Roos, Low Assoc
Fees, A Lorge Lot! Talking about opportunity !

BEAT THE Bank! Yes, there is a huge sense of urgency here… not.

Your last chance to buy this Home? Bull$hit. This will be REO soon enough.

incredible Sunset Views? Over a parking lot.

A Lorge Lot! Gotta have that…

  • The owner of this property paid $575,000 on 5/18/2004. He used a $460,000 first mortgage and a $115,000 downpayment.
  • On 5/9/2005 he refinanced with a $513,750 Option ARM with a 1% teaser rate. Interesting that he did not cash out.
  • Total property debt is $513,750 plus negative amortization.
  • Total mortgage equity withdrawal is $53,750 which doesn’t even recover his downpayment.

This borrower was relatively conservative, and he is losing a great deal of his own money. If this place sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $133,200. This is not a huge sum by Irvine standards, but this was a spring 2004 purchase, and I doubt this guy or anyone else buying then thought they could possibly lose anything. Well, if the stock markets can roll back to 1996 prices, how far can real estate prices roll back?


I remember working on a rooftop
In the hot summer sun all day
Now I work two hours a night
It feels a lot more like play

‘Fore Kenny joined the band
He used to hang dry wall
Ben worked down at Valentino’s
So when you see us up here and think
Man they’re lucky
You don’t have to tell us ’cause we know

Yeah, we’re laughing all the way to the bank
‘Cause it all just seems so funny
A bunch of guys like us
In a big tour bus
Making that easy money

Desperado hauled cattle
Grady drove trucks
Justin had a hot dog stand
Kevin sold records

Easy Money — Brad Paisley

47 thoughts on “Produce the Note

  1. granite

    Even the $330,000 price this sold for in 2001 is too high for this “box by the freeway”. I looked at renting a similar house in this area. It was the most depressing one I looked at and it wasn’t near the 405.

    It’s not surprising that the same people who drank the “real estate always goes up” Kool Aid actually believe they can steal a house. I see them standing in line at the lottery machine in the grocery store all the time.

    1. george8

      I got excited looking at the listing photos – what a beatiful setting. Then I read your post about 405, then I looked at the location map, then my excitement vanished, then I am depressed by the 405 noise in my head.

  2. AZDavidPhx

    The Produce the note smoke-and-mirrors trick being used by the debtor lawyers is clever and it is indeed funny to watch the lenders get their feathers in a ruffle.

    Nevertheless, it is not going to work. Those who think they are going to get a free house out of the deal are morons.

    These are the same kinds of people who think they are so smart by showing up to traffic court believing that the officer will not bother to attend; only to have no defense when the officer does show up and are found guilty.

    Anyone who thinks that the banks do not eventually win is a fool. And in this case, they deserve to win. Nobody deserves a free house just because the lender lost some paperwork – that doesn’t change the fact that the debtor doesn’t owe money. Duh.

    1. maliburenter

      There is a different free house problem which troubles me.

      Imagine a mortgage which was sold several times and one or two links in the chain are companies which are now closed. In all of the turmoil, somebody forgot to file something with the County Recorder.

      A remaining company could foreclose on a house they no longer owned the paper for. If they do this because someone else in the chain is gone, they have a low chance of getting caught.

      It’s the creditors of the defunct company (or whoever took it over) that are getting screwed.

        1. jack fate

          Yes. I’ve seen many mortgages where numerous links in the assignment chain never make it to public record – certain banks are/were notorious for crappy housekeeping in this respect.

          As a title examiner/reader in Upstate MY (before I got laid-off last May) I had personally stopped quite a few foreclosure actions by refusing to write the report needed to issue the FC Certificate. Why? Because the foreclosing bank could not prove it held legal title to the lien. Most cases involved, it seemed, the Bankers Trust Company, wherein the lien they held as trustee was sold to another party, but the grantor trust was usually an investment group that dissolved before they produced a assignment of mortgage or deed of trust to be recorded in the corresponding county clerk’s/recorder’s office.

          Different title insurance companies have different underwriting standards. My former company (one of the Big Three in the title world) was rather timid about taking that kind of risk. In one instance, there were two banks trying to foreclose the same lien. No one told the collections department of one bank that the loan had been sold to another.

          Never-the-less it was an interesting conversation when I had to call one of the banks (and their law firm) and explain that they had no business foreclosing the lien and could they please stop so the proper bank could proceed with the action. One guy from a bank, on the phone, didn’t believe me and thought I was the borrower trying to trick him. He even found time to lecture me on letting “my loan” go into default – I’m a lifetime renter, btw.

          It does happen. As for the “produce the note” gambit. Wouldn’t the recorded mortgage/deed of trust suffice as proof of the lien? I thought that was the whole point of recording liens with the local registrar/recorder/clerk.

    2. lunatic fringe

      The banks had no problems playing home buyers and MBS investors for suckers. I would love to see them have to give away free houses for sloppy paperwork as a comeuppance. The worse they get burned, the quicker we return to prudent lending and affordable home values.

      So in other words, screw the banks.

      1. AZDavidPhx

        Screwing the banks would be nice, but the banks do not get screwed. Heads they win, tails the tax-payer (you and I) will lose.

        In other words, if a debtor is awarded a “free” house – it just means that it is bought and paid for by the tax payers.

  3. JimDallas

    This tactic has worked for debtors in the credit card world. If your credit card goes into default and is sold to another company debtor’s counsel asks for copies of the monthly statements. The new company doesn’t have these and can’t usually get them so the debt goes away.

  4. boyd

    “produce the note” won’t work; there’s always a note. it will cause delays, however.

  5. mav

    The details of the modification plan are out. They eliminated LTV requirements.

    “Current LTV: There is no minimum or maximum LTV ratio for eligibility purposes.”

    I’m somewhat offended… strike that I’m very offended that they think homeowners who took on a 60% DTI are “responsible” and not speculators. I really doubt that this plan will work in Orange County where it is still likely more beneficial for the bank and the banks shareholders to foreclose.

    1. IrvineRenter

      Elimination of the LTV requirement was essential to any program of loan workouts. If nobody qualifies due to falling home prices and higher LTV requirements, the program is worthless. Of course, borrowers still have to meet the other underwriting criteria, and many do not (Think liar loans). Plus, like the other programs, it does not apply to jumbo loans. So all the Alt-A, jumbo, and Option ARMs in OC are still going to blow up, and they owners will not be eligible to refinance.

      1. nowwaat

        from Yahoo/AP: “Mortgages for single-family properties that are worth more than $729,750 are excluded.” It now appears that the program does apply to Jumbo loans up to $729,750. The subsidies will bring DTI to 31%!. I could not even dream of having a DTI that low even if we buy at today’s relatively lower prices! wow! In hindsight I wish I had bought at inflated prices 😉

        1. No_Such_Reality

          With a max underwater rate of 5% the only people that will qualify are those in the could afford their home when they bought it three years ago.

  6. Irvinite

    I don’t own so I am not feeling the fear that owners that “don’t have power, and use lanterns to move around their house” but this produce the note tactic is absurd. I hope banks can install google search and find these notes quickly.

    I would ask the banks to work with the homeowners for a maximum of 6 months to work out a deal.

    I know there is not a single answer to this problem, but I think lowering the principal is unfair to everyone. Banks and Citizens.

    1. maliburenter

      The note itself is generally paper with an actual signature, though there may be a scanned copy.

  7. wheresthebeef

    When has 3100 sq ft been considered a large lot? Not to mention that is one of the ugliest houses I have ever seen…complete lack of curb appeal.

    I really miss my old place I sold in HB back in 05. 7000 sq ft lot, great curb appeal, no HOA, no Mello Roos and low insurance. Those are my targets when I buy again sometime in the future.

    1. tonyE

      You forgot about the fascist cops in HB. Worse than anything in Irvine.

      If the IPD and NBPD are the John Waynes of OC, the HBPD is Zapata Gone Anglo.

  8. maliburenter

    “Well, if the stock markets can roll back to 1996 prices, how far can real estate prices roll back?”

    Yes, 1996, probably by the end of 2010. Adjusted for inflation, it will take prices back to the 1980s.

    1. no_vaseline

      And if that stop doesn’t hold, it’s back to 1984 prices. I think that is the next price point down.

  9. AVRenter

    Beet the Bank and You two Can Have your very Own J Edgar Hoover mini FBI BuildING! Easy Access tOO the freaway – 100 Feet to Be Exakt! !/!!\\

    Boy, you know you’ve got a winner when the pictures are everything but the house. You get one recycled pic of the alley/front yard and everything in the neighborhood except the 405.

    “Talking about opportunity”? No one is talking.

    “Sunset Views”? Only if that’s a new Toyota model.

    Nearly half-a-mil for this place that is almost a half-century old? I’m sick of Irvine.

    No, “Get outta my house,” for this one. This dump doesn’t need a staging tuneup, it needs a bulldozer and some asphalt. Get the fok outta my commuter lane.

  10. Stephanie O

    I agree that “produce the note” is largely a stalling tactic, but consider this – what if the homeowner / debtor pays the wrong entity for the mortgage? Then they no longer have the property but they still have the debt to whoever actually *does* have the note. If I were in this situation, I’d be making darn sure I was paying the right company to retire the debt before giving up my claim on the property.

    1. Rijo

      The California Civil Code is set up to avoid the type of scenario you mention. The borrower is protected in this situation.

  11. CougBear

    The comment from the lady that refi’d her house 3 times was interesting. She pulled out over $100k in refi’s and now thinks that the banks are the scum of the earth. I bet she loved them when she was taking that trip to the Bahama’s in 2007 with her refi money…

  12. steve

    total newbie question, so apologies, but I can’t seem to find the answer:

    where does IHB get is per property loan data?

    I’ve used propertyshark but I never see the detail that is typcial here (interest rates, refi’s, etc.). Any guidance on inexpensive data sources would be greatly appreciated. Thanks, and keep up the great work. The quality of the posts and comments are amazing!

  13. tonyE

    Here’s the flip side to “who’s got the note”.

    We’re refinancing and we’re keeping a small HELOC with a small balance.

    We don’t want to refi the balance on the HELOC because now that’s considered a “cash out”. We don’t really want to pay it off because we want to keep the money in CDs at the credit union. Also, we’re coming ahead as the HELOC cost is less less than what we are getting on those year and a half old CDs.

    Meanwhile, the HELOC got sold and sold and sold and now the holder (CountryWide aka BoA) says it will take six to eight weeks to process the subordination papers for our new loan.

    So, the idiots are holding off our refi. Everything is in place to go ahead with a lower interest rate but the clowns over there can’t get the paper processed. So, either we pay off the MF’s and close the HELOC and lower our savings and close off a possible additional cash line in case we needed in this economic meltdown or we wait and risk seeing higher rates (I don’t really think that’s likely).

    See? The flip side of “whose got the note” is when the lenders are so screwed up that they run the risk of losing perfectly performing and well paying loans with low risk of default.

    Perfect storm. Good loans are being closed while the bad loans, the ones going to foreclosure, are staying on their books.

  14. nowwaat

    Would the County – where the deed of trust is recorded – have a copy of the TD? Copies are sometimes available for a small fee. comes to mind.

  15. thrifty

    I agree with Stephanie O. Asking the servicer to determine who owns the loan is only fair. It accomplishes at least 2 things:
    1. The entity getting the $ is the one holding the note and legally entitled to the $.
    2. It eliminates the possibility that an entity that sold the loan will be paid twice – and the homeowner hasn’t paid off the loan.
    While it may be used unfairly as a stalling tactic, in my view it is eminently necessary.

  16. camsavem

    LOL, if this mess wasnt killing the economy it would really be funny. Screw the banks and screw the people who bought homes they knew they couldnt afford.

    “Produce the note”, what a joke, like they dont know if they own the (debt) house!!!

    Having owned my own business for years I can honestly say companies never lose the checks I send them in the mail, but somehow they dont seem to get the invoices.

  17. Alan

    “Produce the note” – all for it!

    The banks/investors/whomever are whining about the sacred Contract, while they try to force screwed homedebtors into paying huge amounts of interest on underwater properties that continue to plummet in value. If they want to squeeze blood, it’s certainly fair to make them show what they are trying to enforce. I’d run checks on their numbers too.

    Of course so many of the people on the other side of the transaction brought this on themselves. When the note is eventually found, they shouldn’t be able to walk away from any recourse part of the loan either!

    1. Rijo

      In California, this isn’t the law. There is no requirement that the note be produced prior to initiating a foreclosure.

  18. irvinefsbo

    I wouldn’t think lenders should have any problems producing the note. They have had a six month moriatorium on foreclosures, would be a good time to research the note before filing foreclosure. It would save everyone time, and may even employ some people in this economy. …irvinefsbo

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